Will tighter regulations on short-term letting work?

Australia is in the middle of a rental crisis right now. With a severe shortage of available rental properties and rapid rent increases, some jurisdictions are looking once more at whether more needs to be done to protect renters from the impacts of short-term letting platforms like Airbnb.

Victoria has just introduced a 7.5 per cent levy on bookings made via short-term letting platforms, while NSW has approved a 60-day cap in Byron Shire to reduce the impact of short-term letting on the rental market.

While short-term rentals may not solely be to blame for current pressures, Dr Laura Crommelin, Senior Lecturer in City Planning at the School of Built Environment, UNSW Arts, Design & Architecture, says it’s important for regulators to consider and manage the impact of short-term letting on rental markets.

“Housing was already unaffordable before short-term letting platforms like Airbnb came along, but it is another factor exacerbating the problem,” Dr Crommelin says. “Just because it’s not the sole cause, doesn’t mean it’s not having a significant impact.”

Airbnb and other platforms like it have increased the scale of short-term letting, placing further strain on the existing housing supply. Some landlords have converted former residential tenancies into year-round short-term rental listings, making it harder for prospective renters to find a place to call home.

“There is a strong likelihood that short-term letting is taking away some properties that would otherwise be in the rental market, particularly in places with significant tourism appeal,” Dr Crommelin says.

A permissive regulatory approach

Many cities overseas have introduced strict regulations to protect local housing supply, including outright bans on commercial-style short-term rentals. For example, New York has just introduced new regulations that effectively prohibit ‘unhosted’ short-term rental listings, meaning listings are only allowed if the host is also living in the property. In comparison, the approach across Australia has been relatively permissive and hands-off.

“What we’ve seen emerge in places with light regulation is the type of short-term rental that is not just renting out a spare room a few nights a week, but one that’s on the market all year-round, often run by a professional property manager with large portfolios – more like permanent tourist accommodation,” Dr Crommelin says.

AHURI research conducted in 2018 by Dr Crommelin and the City Futures Research Centre found many Airbnbs in Sydney and Melbourne were likely to be classified as full-time commercial letting rather than house-sharing.

“Not only do you get the housing market impacts, but that type of sharing causes issues in multiple different ways,” Dr Crommelin says. “For residents living next to these properties, there are concerns about changing neighbourhood dynamics, trust and safety, and well-documented problems with party houses.”

Read more: The winners and losers of Airbnb-style letting in Australian cities

New South Wales now requires hosts to register their short-term letting property and has implemented a 180-day cap on the number of nights a residential property can be leased throughout the year in some parts of the state. The rules also make a distinction between sharing and commercial letting.

However, Dr Crommelin says the cap should be tailored more closely to the needs of local housing markets.

“The decision to approve a 60-day annual cap for Byron Shire Council makes sense, given the particularly acute housing market issues in that part of the state,” Dr Crommelin says. “Some other Airbnb hotspots would also benefit from a lower cap like this.”

A 60-day cap in Byron Shire has been approved in an attempt to reduce the impact of short-term letting in the region. Photo: Getty Images.

Elsewhere, the benefits for tourism from allowing more Airbnb activity may outweigh the housing market impacts.

“Short-term letting activity is spatially concentrated, so it makes sense to take a much more nuanced approach,” Dr Crommelin says. “The fact the government has approved reducing the cap in Byron Shire suggests the current regulations aren’t sufficiently discouraging investors from using their property as a short-term rental in some areas.”

Read more: Regional cities: not a simple housing solution for metropolitan growth pressures

While tighter caps won’t necessarily put every short-term rental back into the long-term rental market, Dr Crommelin says it may help boost at least some supply in the short term and ease some of the pressure for renters.

“There is at least some proportion of existing housing stock used for Airbnb that would return to the rental market if short-term letting were a less attractive proposition,” Dr Crommelin says. “However, there will still be some owners who would prefer to leave their property vacant rather than ever use it for permanent rental housing.”

It remains to be seen whether modest short-stay levies, like the kind introduced in Victoria, will impact listings.

“I’m not sure it will have a significant impact on booking rates, though it might mean some people decide to revert back to using hotels instead,” Dr Crommelin says. “But, if it provides some more revenue to help with enforcement and support other housing policy goals, then that’s a good thing.”

Financialisation of housing

More broadly, Dr Crommelin says the rise of short-term letting is symptomatic of a growing divide in Australia along the lines of housing equity. Short-term letting platforms contribute to financially driven attitudes towards housing, where the property is viewed foremost as a money-making asset rather than a place for someone to live.

“There are those who have housing equity and can grow their wealth through property and those who don’t and whose chance of acquiring it is drifting further away,” Dr Crommelin says. “Short-term letting is simply another way housing can be monetised by those who already have access to it, making the challenges even greater for those who don’t.”

While addressing the shortage of housing stock in the private rental market is necessary to help address the rental housing crisis, housing policy experts also say strengthening protections for renters and building more social housing is critical.

Read more: What is the Housing Australia Future Fund and how will it boost social housing?

“There is a much bigger discussion to be had around how broader housing policies, like negative gearing, capital gains discounts and a lack of social housing construction, have led us to the situation we’re in right now,” Dr Crommelin says.

“So, while Airbnb and short-term letting is part of that conversation, it would be a mistake to assume that addressing it alone will fix all of our housing affordability problems.”